IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8411.html
   My bibliography  Save this paper

Economic Perspectives on Software Design: PC Operating Systems and Platforms

Author

Listed:
  • Steven J. Davis
  • Jack MacCrisken
  • Kevin M. Murphy

Abstract

Improvements in the software that provides hardware management, user interface and platform functions have played a central role in the growth and transformation of the personal computer (PC) industry. Several forces shape the design of these 'operating system' products and propel their evolution over time, including: A. The need to efficiently manage the interacting components of PC systems so as to keep pace with rapid advances in computer technologies the development of applications software. B. The need to maintain compatibility with existing applications while preserving the flexibility to incorporate additional functions that support new applications. C. The desire to economize on customer support costs and assign clear responsibility for making the interacting components of the PC work together. D. The desire to bundle multiple software features into a single package so as to more effectively meet the demand for complementary applications or reduce the diversity in product valuations among consumers. We analyze these forces and the factors that determine whether and when new features and functions are included in commercial operating system products. We also explain how this integration and bundling spurs growth in the PC industry and fosters innovation.

Suggested Citation

  • Steven J. Davis & Jack MacCrisken & Kevin M. Murphy, 2001. "Economic Perspectives on Software Design: PC Operating Systems and Platforms," NBER Working Papers 8411, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8411
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8411.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Franklin M. Fisher, 2000. "The IBM and Microsoft Cases: What's the Difference?," American Economic Review, American Economic Association, vol. 90(2), pages 180-183, May.
    2. Kevin M. Murphy & Steven J. Davis, 2000. "A Competitive Perspective on Internet Explorer," American Economic Review, American Economic Association, vol. 90(2), pages 184-187, May.
    3. Joseph Farrell & Michael L. Katz, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 413-432, December.
    4. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    5. Gilbert, Richard J & Katz, Michael, 2001. "An Economist's Guide to U.S. v. Microsoft," Department of Economics, Working Paper Series qt56f8p06q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    7. David S. Evans & Richard Schmalensee, 2002. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 1-50, National Bureau of Economic Research, Inc.
    8. Glenn Ellison & Drew Fudenberg, 2000. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 253-272, Summer.
    9. Richard J. Gilbert & Michael L. Katz, 2001. "An Economist's Guide to U.S. v. Microsoft," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 25-44, Spring.
    10. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    11. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 81-99.
    12. Nicholas Economides, 2001. "The Microsoft Antitrust Case," Journal of Industry, Competition and Trade, Springer, vol. 1(1), pages 7-39, March.
    13. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer.
    14. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    15. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    16. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
    17. repec:bla:jindec:v:48:y:2000:i:4:p:413-32 is not listed on IDEAS
    18. Steven J. Davis & Kevin M. Murphy & Robert H. Topel, 2004. "Entry, Pricing, and Product Design in an Initially Monopolized Market," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 188-225, February.
    19. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 371-383.
    20. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
    21. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
    22. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    23. repec:aei:rpbook:53444 is not listed on IDEAS
    24. Vickers, John S, 1986. "The Evolution of Market Structure When There Is a Sequence of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 1-12, September.
    25. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
    26. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    27. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
    28. Carliss Y. Baldwin & Kim B. Clark, 2000. "Design Rules, Volume 1: The Power of Modularity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024667, April.
    29. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
    30. Benjamin Klein, 2001. "The Microsoft Case: What Can a Dominant Firm Do to Defend Its Market Position?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 45-62, Spring.
    31. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    32. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    33. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    34. Yannis Bakos & Erik Brynjolfsson, 2000. "Bundling and Competition on the Internet," Marketing Science, INFORMS, vol. 19(1), pages 63-82, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steven J. Davis & Kevin M. Murphy & Robert H. Topel, 2004. "Entry, Pricing, and Product Design in an Initially Monopolized Market," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 188-225, February.
    2. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2005. "A Survey of the Economic Role of Software Platforms in Computer-based Industries," CESifo Economic Studies, CESifo Group, vol. 51(2-3), pages 189-224.
    3. van Wegberg, Marc, 2004. "Compatibility choice by multi-market firms," Information Economics and Policy, Elsevier, vol. 16(2), pages 235-254, June.
    4. Riyanto, Yohanes E. & Schwienbacher, Armin, 2006. "The strategic use of corporate venture financing for securing demand," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2809-2833, October.
    5. Kevin Boudreau, 2005. "The Boundaries of the Platform: Vertical Integration and Economic Incentives in Mobile Computing," Working Papers hal-00597767, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    2. Christos Genakos & Kai‐Uwe Kühn & John Van Reenen, 2018. "Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets," Economica, London School of Economics and Political Science, vol. 85(340), pages 873-902, October.
    3. Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    4. Chun‐Hui Miao, 2010. "Tying, Compatibility And Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 579-606, September.
    5. Mohammad Arzaghi & Ernst R. Berndt & James C. Davis & Alvin J. Silk, 2008. "Economic Factors Underlying the Unbundling of Advertising Agency Services," NBER Working Papers 14345, National Bureau of Economic Research, Inc.
    6. Peitz, Martin, 2008. "Bundling may blockade entry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 41-58, January.
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    8. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics (QME), Springer, vol. 6(1), pages 41-78, March.
    9. David S. Evans & Richard Schmalensee, 2002. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 1-50, National Bureau of Economic Research, Inc.
    10. Akifumi Ishihara & Noriyuki Yanagawa, 2013. "Dark Sides of Patent Pools with Compulsory Independent Licensing," CARF F-Series CARF-F-318, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    11. Min-Seok Pang & Hila Etzion, 2012. "Research Note --- Analyzing Pricing Strategies for Online Services with Network Effects," Information Systems Research, INFORMS, vol. 23(4), pages 1364-1377, December.
    12. Hal R. Varian, 2001. "High-technology industries and market structure," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 65-101.
    13. Gastón Llanes & Andrea Mantovani & Francisco Ruiz-Aliseda, 2019. "Entry into Complementary Good Markets with Network Effects," Strategy Science, INFORMS, vol. 4(4), pages 262-282, December.
    14. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    15. Doh-Shin Jeon & Domenico Menicucci, 2009. "Bundling and competition for slots: Sequential pricing," Economics Working Papers 1168, Department of Economics and Business, Universitat Pompeu Fabra.
    16. Hemant K. Bhargava, 2012. "Retailer-Driven Product Bundling in a Distribution Channel," Marketing Science, INFORMS, vol. 31(6), pages 1014-1021, November.
    17. Altug, Mehmet Sekip & van Ryzin, Garrett, 2013. "Product quality selection: Contractual agreements and supplier competition in an assemble-to-order environment," International Journal of Production Economics, Elsevier, vol. 141(2), pages 626-638.
    18. Rustam Ibragimov, 2004. "Shifting paradigms: on the robustness of economic models to heavy-tailedness assumptions," Econometric Society 2004 Latin American Meetings 105, Econometric Society.
    19. Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
    20. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.

    More about this item

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8411. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.